IPO fever grips Brazil

Posted on Oct 20, 2020 at 7:30 a.m.

Earlier this month, customers in a São Luiz supermarket were frightened when shelves collapsed from a height of 10 meters and killed one person and injured eight others. The accident did not, however, discourage investors, who guaranteed a week later to the large distributor Mateus, owner of this store in the Northeast of Brazil, the largest IPO of the year on the São Paulo Stock Exchange, with a value of 4.5 billion reals (around 700 million euros).

This is not an isolated case. After about fifteen years of lull, the IPO market has recovered. Twenty deals were closed in 2020, compared to only five in 2019, due to the strong appetite of investors and an attractive offer. These capital openings have brought in some 15 billion euros to the companies concerned since the start of the year, a historic record.

Good vintage

“It’s a very good harvest”, welcomes François Décamps, director of the finance firm Caravel CF, who emphasizes “The wish ofdiversification on the part of investors in the new low interest rate environment [NDLR : le taux de base de la Banque centrale est actuellement à 2 %], the search for exits on the part of investment funds which are more easily done through IPOs than through sales to international strategic buyers, and the good quality of the files ”.

Bet on growth

Other operations were completed in the distribution sector. “Retail sales have already caught up to the pre-pandemic level. Growth is already starting to pick up in the distribution sector and it will come back elsewhere ”, estimates François Legleye, founder of the Kamea investment shop, who detects in this IPO boom a bet on the recovery of the economy. “Investors are counting on the return of growth and are jostling at the IPO gate”, he said.

Beware of charlatans

Foreign investors, who made just 38% of the contributions in this year’s IPOs, according to Bloomberg, are being much more cautious than in the past. But while the number of local investors in the stock market has recently exploded, some do not hesitate to send a certain warning. “Today there is a proliferation of information on social networks. Bloggers give their opinion on a particular investment. There are a lot of companies in the digital age that are doing well during the pandemic, but it is not known if they will survive in a few years ”, says Flavia Cavalcanti, head of financial markets at the law firm Tozzini Freire. “There is a certain euphoria over social media. There’s a whole bunch of financial information out there, from so-called independent investment advisers that hold out possibilities for financial gain. There are people who seem ready to sell ‘land on the moon’ ”, to use a popular expression used in Brazil.

However, the fever of capital openings seems to have been brought under control. Not all operations were successful, far from it. Among the fifty companies which were preparing the introduction of their capital on the stock market, ten of them preferred to cancel their operations, and several others postponed them (including Caixa Seguridade, of CNP Assurances). “As in all IPO seasons, there is a bit of exaggeration, but no euphoria”, believes François Legleye.

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